Stock Purchase Agreement

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What It Means

A Stock Purchase Agreement details the terms and conditions involved in the Acquisition of a company through purchase of the majority of its stock. It is one of the two common forms of Purchase Agreements, with the other being an Asset Purchase Agreement.

Why It’s Important

Unlike an Asset Purchase, in a Stock Purchase the Buyer assumes control of the company “as is”, including assets and liabilities. Buyers will often prefer an Asset Purchase, but sometimes circumstances make an Asset Purchase a difficult option. For example, some key customer contracts may be non-transferable and would need to be renegotiated by the acquiring entity. Taking the route of a Stock Purchase avoids that conflict because a stock purchase doesn’t require assignment to another entity.

The choice between an Asset Purchase or a Stock Purchase will almost certainly have significant tax implications for all parties. Both Sellers and Buyers should seek advice from tax professionals experienced with business Acquisitions.

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